Friday, January 31, 2014

Getting into hot water - one of Iceland’s geothermal power plants.
Gretar Ívarsson

Can enormous heat deep in the earth be harnessed to
provide energy for us on the surface? A promising report from a
geothermal borehole project that accidentally struck magma – the same
fiery, molten rock that spews from volcanoes – suggests it could.

The Icelandic Deep Drilling Project, IDDP,
has been drilling shafts up to 5km deep in an attempt to harness the
heat in the volcanic bedrock far below the surface of Iceland.

But in 2009 their borehole at Krafla, northeast Iceland, reached only
2,100m deep before unexpectedly striking a pocket of magma intruding
into the Earth’s upper crust from below, at searing temperatures of
900-1000°C.

This borehole, IDDP-1, was the first in a series of wells drilled by
the IDDP in Iceland looking for usable geothermal resources. The special report
in this month’s Geothermics journal details the engineering feats and
scientific results that came from the decision not to the plug the hole
with concrete, as in a previous case in Hawaii in 2007, but instead
attempt to harness the incredible geothermal heat....MORE

"...two kilometers or so down in most places there are these
incredibly hot rocks, ’cause the interior of the earth is extremely hot,
several million degrees, and the crust of the earth is hot ”
-Al Gore talking to Conan O'Brien on the Tonight Showhttp://www.youtube.com/watch?v=14kNtnJgXXM

This sets up an interesting (and potentially profitable) dynamic going into the big 2015 21st Conference of the Parties in Paris, more so than the the Sept. 2014 "Climate Summit" mentioned in the story, more to come.
From Reuters:

New York City Mayor Michael Bloomberg speaks
at the Conservative Party

conference in Birmingham, central England
October 10, 2012 in this file photo.

U.N.
Secretary-General Ban Ki-moon on Friday appointed former New York City
Mayor Michael Bloomberg as his special envoy for cities and climate
change, in a bid to build momentum ahead of a planned U.N. conference in
September.

Ban said Bloomberg
will assist him in "consultations with mayors and related key
stakeholders, in order to raise political will and mobilize action among
cities as part of his long-term strategy to advance efforts on climate
change."

Ban is seeking to
re-energize the global climate change debate and boost the United
Nations' role. The U.N. role for Bloomberg - a billionaire
philanthropist who left office last month - was reported by Reuters on
Thursday.

In a statement,
Bloomberg said cities had emerged as a leading force in the battle
against climate change. His appointment as U.N. special envoy is for two
years.

"Cities account
for more than 70 percent of global greenhouse gas emissions and
two-thirds of the world's energy use today, and their total population
is projected to double by 2050," Bloomberg said."So
the steps they take now to combat climate change will have a major
impact on the future of our planet. Cities have shown they have the
capacity and the will to meet this challenge," he said.

Samantha Power, U.S. ambassador to the United Nations,
was quick to welcome Bloomberg's appointment, posting on Twitter:
"Mayor @MikeBloomberg knows how to get things done. We need more leaders
like him here @UN."

Bloomberg
made combating climate change a key focus during his 12 years leading
the United States' most populous city. He also advocated for national
climate change legislation.

DRUMMING UP SUPPORTBloomberg
has played a leading role in the C40 Cities Climate Leadership Group,
an international group of mayors created in 2005 and dedicated to
reducing greenhouse gas emissions. The C40 group, of which Bloomberg is
president of the board, is to meet in Johannesburg next week....MORE

Three-dimensional printers layer materials to create
objects, technology that Nike Inc. used to help develop footwear
for National Football League players to don at this weekend’s
Super Bowl. Hewlett-Packard and Seiko Epson have shown interest
in expanding into the fast-growing market, which may double by
2017. Rather than build their own 3-D printers, the companies
would have a better shot of capturing that growth by buying
Stratasys, BB&T Corp. said.

“The first machine was essentially a glue gun compared to
what they do today, so to be starting from scratch is to be
behind by a lot of patents and a lot of history that you have to
make up,” Holden Lewis, a Reston, Virginia-based analyst at
BB&T, said in a phone interview. Stratasys “would be an
appealing little nugget to sort of fast-forward that process.”

While Stratasys would be a pricey purchase for a buyer with
its stock near a record, the company is valued at a 33 percent
discount to rival 3D Systems Corp. (DDD), according to data compiled
by Bloomberg. The valuation gap makes Stratasys a more appealing
target than its larger rival, FBR & Co. said. Suitors also may
favor the $5.9 billion company because of its brands such as
MakerBot and its greater presence in consumer markets, Credit
Suisse Group AG said.

Photographer: Ariel Jerozolimski/Bloomberg

Objects manufactured by 3D printers, including a skateboard and a Smurf figurine,... Read More

Big Slice
Shane Glenn, a spokesman for Stratasys, declined to
comment, citing company policy, when asked whether it would be
interested in a sale.

Stratasys, based in Eden Prairie, Minnesota and Rehovot,
Israel, began making 3-D printers more than 20 years ago and now
controls one of the largest slices of a market that generated as
much as $2.9 billion in revenue worldwide last year, according
to consulting firm Wohlers Associates Inc.

Global sales, including all 3-D printing products and
services, may double to about $6 billion by 2017 and jump to
almost $11 billion by 2021, Fort Collins, Colorado-based Wohlers
Associates said. Stratasys alone may boost revenue to about $1
billion by 2016, up from an estimated $482 million in 2013,
according to analysts’ projections.

The company, which acquired MakerBot in August, “would be
a potentially attractive target for anyone looking to make a big
splash within the space,” Angelo Zino, a New York-based analyst
at S&P Capital IQ, said in a phone interview. “It instantly
gives you a huge presence in the 3-D printing market.”

Photographer: Ariel Jerozolimski/Bloomberg

A visitor approaches the entrance to the offices of Stratasys Ltd., manufacturer of 3D... Read More

While some larger technology companies are beginning to
move into 3-D printing, “it’s certainly a high-risk strategy to
do this from scratch internally, and it takes a lot of time,”
Ajay Kejriwal a New York-based analyst at FBR, said in a phone
interview....MORE

...As with nanotechnology the most interesting portfolio investments will
end up being not the 3D printer manufacturers but the companies that use
the tech to gain a competitive advantage.
Still wish I'd put together a buyout for Arcam though.

Felix Salmon at Reuters sums up the problem with a lot of “disruptive” innovation these days.
It’s not really all that innovative — but rather focused on finding
ever cleverer and more subtle ways of dodging established regulations,
which, as he also points out, exist for a reason.

Should it therefore be surprising that the likes of Airbnb, Uber and
even Bitcoin are more cost effective than established competitors when
they’re either cutting out the taxman or costs of compliance altogether?
How can regulated industry possibly hope to compete?

Home swapping, for example, is the sharing economy. It works
because two parties partake in an exchange in kind. The exchange
maximises and expands the reach and utility of an existing asset, to the
owner’s direct benefit.

Renting out a spare room for money, which might have been too costly
to market before, is partaking in the hotelier industry, and means
expanding the reach of your asset to a third party.
The morale of the story being it’s only really a peer-to-peer
innovation if no money is swapped at any given time, even a minimal sum.
Everything else is tantamount to exploiting collective organisation for
the purpose of rent extraction, regulatory evasion or tax dodging.
Hence why it lends itself so well to Silicon Valley libertarian ideals.

Salmon, in any case, sums it up really well here:

From the point of view of Silicon Valley libertarians,
the idea that they’re disrupting a long-established flow of public
monies is a feature, not a bug. If you threaten their disruptive
business models, you’re threatening their freedom! That’s the message
being sent quite explicitly by the mild-mannered Fred Wilson; his
west-coast counterparts, like Balaji Srinivasan and Peter Thiel, have a
tendency to go even further.

In finance, regulation is very important indeed — if you want to
prevent everything from terrorist finance to global financial meltdown,
central authorities need to be able to keep tabs on all financial flows....MORE

Somebody's got to be the kid who says "The Emperor is without raiment".
Thank you to Izabella for the link. Clear speech for clear thinking. And possibly the Latin name for the Roman battle shovel to boot.

For those who try to avoid the muck of U.S. political commentary, Politico leans left, although you couldn't tell that from this series of what appears to be actual journalism. Thanks to the reader who brought it to my attention.
From Politico Pro:

In
an FDA office building in suburban Maryland, the bureaucrats gather
over coffee to draft rules meant to squeeze the trans fat out of snack
foods.

Four blocks from the White House, in an EPA conference
room: more bureaucrats, more meetings, more drafting of rules, these
aimed at forcing industrialists to spend billions cutting carbon to fend
off global warming.

Congress? Who needs Congress?

Americans heard President Barack Obama declare this week that he
intends to bypass the gridlocked Hill to get things done on his own.
What they didn’t hear: just how far he’s actually pushing his executive
authority.

An in-depth examination of the administration’s actions and plans,
agency by agency, regulation by regulation, reveals an executive power
play that’s broad and bold — and intensely ambitious. Far more than he
let on in the State of the Union, the president has marshaled the tools
of his office to advance policies, many unabashedly liberal, that push
deep into everyday life for tens of millions of Americans.

He wants to change how power plants operate. And what we buy for
lunch. How we travel to work. And how our kids learn math. How our
gasoline is formulated. How we light our aquariums.

Already, the president’s team has enacted 300 economically
significant regulations, far more than Bill Clinton, George W. Bush or
Ronald Reagan did in comparable periods. Some of those rules are driven
by the Affordable Care Act and Dodd-Frank banking reform, the two big
laws Obama pushed through Congress early in his first term, when he had
Democratic majorities in both houses. But there is far more.

When Congress wouldn’t support a climate change bill, the
administration moved on its own to push the energy industry away from
coal and toward green alternatives. The executive branch found a way to
drive tremendous change in public schools, too — though education is
typically under local control — by holding tight to billions
in much-needed funding, and doling it out only to states that pledged
to follow the administration’s prescriptions for reform. A tweak to a transportation grant formula even gave the administration influence over local urban planning; streetcars, all of a sudden, are popping up everywhere.

And it’s not Congress, but the executive branch, that’s on the verge
of making Hershey’s reformulate its Reese’s Pieces. (Out, out, trans
fat!)

As he tees up for his final three years, Obama is pushing to take his
executive power further still, with the most ambitious regulatory
agenda in decades. Executive actions now underway could shut down for-profit colleges
that don’t meet the administration’s definition of success — even if
they’re popular with students. They could raise the price of products
ranging from trucks to furnace fans to manufactured housing to aquarium
lights, by requiring them to be made more energy-efficient. The
executive agenda even reaches the fires of the family hearth, with the
Environmental Protection Agency planning strict new requirements for
home wood stoves.

Whether American guns can be sold abroad. How smokeless tobacco can
be marketed. Which nonprofits can stage get-out-the-vote drives. What
constitutes a single serving of potato chips.

And, perhaps, just how salty those chips should be.

All this, and much more, will depend in large part on the
behind-the-scenes churning of the federal bureaucracy — managed, or by
many accounts micro-managed, by the White House.

Obama has pushed back on complaints from business leaders that he is
overstepping and overregulating. His staff notes that Obama has issued
fewer executive orders than previous presidents and describes his
approach to regulation as pragmatic. “The president does not believe
that we have to choose between protecting the health, welfare and safety
of Americans and promoting economic growth, job creation,
competitiveness and innovation,” White House spokesman Jay Carney said.
“We can do both and we are doing both.” Allies agree, saying with
Congress mired in gridlock, executive action is vital. “We face a
lengthy to-do list of public health and safety priorities,” said Gynnie
Robnett, of the Center for Effective Government. Opponents, however, blast Obama for arrogant overreach....MUCH MORE

Chart below that depicts leading US Treasury spending vs. SP500 Sales vs
SP500 earnings over the recent long term in time domain.

Of interest is the linearity in the growth of both Treasury spending and
SP500 sales over the time period leading up to the "GFC" in 2008, about
from the years 2001 thru 2007.

While if we look at the below chart depicting the growth in the Fed's
H.8 Loans and Leases in Bank Credit over this same time period that we showed here last week, we can see the NON-linearity of the growth in the establishment of these balances over this same time period.

So even though bank credit was growing exponentially, we can see no
exponential growth in sales by firms over this same time period.

This observation might make one want to wonder: "Where did the money go?"....MORE

After getting clobbered yesterday (following Wednesday's 10%+ up move) the new front futures (March) are down another 13 cents at $4.881.
The closing settlement on the February's was $5.557 after trading over $5.70 in their last hour of life.
The Baker Hughes rig count via WTRG Economics:

North
American Rotary Rig CountsThe U.S.
rotary rig count was unchanged at 1,777 for the week of January 24,
2014. It is 28 rigs (1.4%) higher
than last year.

The
number of rotary rigs
drilling for oil was up 8 at 1,416. There 101 more rigs
targeting
oil than last year. Rigs drilling
for oil represent 79.7 percent of all drilling activity. Rigs
directed toward natural
gas were down 9 at 356. The number of rigs currently drilling
for
gas
is 78 lower than last year's level of 429.Year-over-year
oil exploration
in the U.S. is up 7.7 percent. Gas exploration is down 18.0 percent.
The
weekly
average of crude oil spot prices
is 0.5 percent lower than last
year
and natural gas spot prices are 40.1 percent higher than last year. Daily
crude oil and natural gas futures and spot prices
are available on
our site.

Canadian
rig activity is up 25 at 590 for the week of January 24, 2014 and is 31 (5.0%) lower than last
year's rig count.
The number of rigs drilling for oil was up 15 at 394 and is 80
(16.9%) lower than last year. Gas directed rig count at 196 is up 10
and is 49 rigs
(33.3%) higher than last
year. Canadian
drilling falls
rapidly in
the
spring to avoid environmental damage moving drilling equipment during
the spring thaw and rainy
season. With wide weather related seasonal
swings, even
year-over-year
comparisons
can lead to incorrect conclusions.

North American Rig
Count

Change

Percent Change

01/24/2014

01/17/2014

01/25/2013

Weekly

Annual

Weekly

Annual

Total U.S.

1,777

1,777

1,753

0

24

0.0%

1.4%

Offshore

56

57

52

(1)

4

-1.8%

7.7%

Land

1,721

1,720

1,701

1

20

0.1%

1.2%

Inland Waters

20

20

18

0

2

0.0%

11.1%

Oil

1,416

1,408

1,315

8

101

0.6%

7.7%

Percent

79.7%

79.2%

75.0%

0.5%

4.7%

Gas

356

365

434

(9)

(78)

-2.5%

-18.0%

Percent

20.0%

20.5%

24.8%

-0.5%

-4.7%

Directional

211

219

181

-8

30

-3.7%

16.6%

Horizontal

1,170

1,173

1,127

-3

43

-0.3%

3.8%

Vertical

396

385

445

11

-49

2.9%

-11.0%

Gulf of Mexico

56

55

51

1

5

1.8%

9.8%

Gulf Oil

40

40

37

0

3

0.0%

8.1%

Percent

71.4%

72.7%

72.5%

-1.3%

-1.1%

Gulf Gas

16

15

14

1

2

6.7%

14.3%

Percent

28.6%

27.3%

27.5%

1.3%

1.1%

Canada

590

565

621

25

(31)

4.4%

-5.0%

Oil

394

379

474

15

(80)

4.0%

-16.9%

Percent

66.8%

67.1%

76.3%

-0.3%

-9.5%

Gas

196

186

147

10

49

5.4%

33.3%

Percent

33.2%

32.9%

23.7%

0.3%

9.5%

North America

2,367

2,342

2,374

25

(7)

1.1%

-0.3%

Prices

Oil $/bbl.

$96.32

$93.34

$95.83

$2.98

$0.49

3.2%

0.5%

Oil $/mmbtu

$16.61

$16.09

$16.52

$0.51

$0.08

3.2%

0.5%

Gas $/mmbtu

$4.93

$4.38

$3.52

$0.56

$1.41

12.7%

40.1%

Monthly:
International Rig Counts...

You have to go back to 1995 to see that small a number of rigs directed at gas:

From Huffington Post’s Bianca Bosker this week regarding Google’s acquisition of DeepMind, with regards to the latter’s concern that artificial intelligence poses an extinction level threat for humanity:

Google’s acquisition of DeepMind came with an estimated
$400 million price tag and an unusual stipulation that adds extra
gravity — and a dose of reality — to Legg’s warning: Google agreed to create an AI safety and ethics review board to ensure this technology is developed safely, as The Information first reported and The Huffington Post confirmed. (A Google spokesman said that DeepMind had been acquired, but declined to comment further.)

Though, as Bosker points out, what’s really interesting is that
Google seems so much more concerned about Asimovian AI morality than
about the ethics of reading your email. Never mind.

That Google is also developing a robot (killer?) army
on the side does have a certain Star Wars “Attack of the Clones” feel
about it, though — especially in the context of Eric Schimdt’s own
warning at Davos about the general automation threat to ever more jobs. What exactly are they planning?

Which leads to another point. We’ve discussed the tendency for
technology companies (and all companies, for that matter) to trend towards monopolisation
and how generally all free-market roads do — unless intercepted by evil
socialist government — lead to a “there can be only one” type monopoly
winner. That or the most disciplined of disciplined cartels.

That was scary back in the days of John D. Rockefeller, Standard Oil and Ida Tarbell.

But what we’re dealing with now is arguably a new level of scary
entirely. Google has transcendentalists like Ray Kurzweil on their
payrolls openly pursuing eternal “cloud-based” life, robot armies and AI
— most of it, if not all, facilitated by their exclusive ownership and
access to an ever growing global organic dataset (G.O.D.), that one day
has the capacity to be all-knowing not only about the here and now, but
about the probability of your consuming a cheese sandwich at tea-time
next Thursday.

Google has plenty of cash to play with, and bored cash-rich companies
that don’t really care about returns can invest in the craziest of
things. This is especially so if they have the power to mint their own
cash in the form of overly inflated stock prices...MORE

Now all they need are some Rhine castles to extract tolls on the commerce going by....

How’s this for an unsurprising statistic? People in England are more likely to get work if they can speak English.

The not-so-shocking nugget of information was published Wednesday by the Office for National Statistics, following analysis of the 2011 census, a once-a-decade survey of the population.

Admittedly, statistics often confirm things we already know. The ONS
report at least gives some pretty specific figures on how important it
is to command the U.K.’s official language when seeking a job.

Of the 46 million adults in England and Wales who filled in the 2011
census, 1.7% — just under 800,000 people — spoke English “not well” or
“not at all.”* They were at a significant disadvantage in finding a job,
with an employment rate of 48%, compared with 65% for those who have
picked up a decent level of English and 72% for whom it is their main
language.

The ONS is seeking to strip down the number of data releases it
publishes in an attempt to cut costs as part of the U.K. government’s
austerity drive. A one-off release such as this, which mostly confirms
the obvious, might raise eyebrows....MORE

So things have been a little rough for our tech heroes the last few
days. Yahoo reported Tuesday evening that revenues last quarter had
dropped again from a year earlier. The stock got hammered after
hours. VM reported that revenues were up 15%. Stock got hammered.
Seagate reported that revenues were down 3.8%. Stock got hammered and
ended 11.2% lower. But the standout was Apple. On Monday evening, it
reported very uninspiring results.

Carl Icahn must have tossed and turned Monday night. Still reeling
from his Apple losses, he was out there on Tuesday hyping the stock with
all his might. They're all doing it, from Warren Buffett on down, guys
with billions of play-money and a loud voice that bounces around the
media in a myriad ways so that no one can escape their hype.

A whole industry has formed around them – the Buffett and Icahn
watchers, whose recommendations, newsletters, and model portfolios claim
to mirror the successes of the Great Ones. They entice the little guy
to jump on the bandwagon and multiply the effects of the early movements
to drive up the stock further.

These Great Ones buy quietly, which itself, given the amounts
involved, moves the stock. Then carefully engineered rumors spread,
which drive up the stock further. This is followed by an official
disclosure – in Icahn’s case, on Twitter – which is picked up by all the
Icahn watchers and the media, and the ensuing hoopla, the interviews,
the quotes, the articles in The Wall Street Journal, the pithy
pronouncements on Twitter drive up the stock further as individual
investors jump into the fray. They all give the Great Ones an
opportunity to proclaim why a company is a “no-brainer,” and why the
stock should surge, or why a stock that swooned – like Apple – shouldn’t
have....MORE

In the post immediately below, "Natural Gas: 'Someone Just Got Amaranth'd'" I had linked to a working paper version that is no longer on the net.
Note to self: Check the link before hitting "Publish".
Via arXive.org:

How Unlucky is 25-Sigma?

By

Kevin Dowd, John Cotter, Chris Humphrey and Margaret Woods

March 24 2008

1. Introduction

One of the more memorable moments of last summer’s credit crunch came when the CFO of Goldman Sachs, David Viniar, announced in August that Goldman’s flagship GEO hedge fund had lost 27% of its value since the start of the year. As Mr. Viniar explained, “We were seeing things that were 25-standard deviation moves, several days in a row.”

One commentator wryly noted: That Viniar. What a comic. According to Goldman’s mathematical models, August, Year of Our Lord 2007, was a very special month. Things were happening that were only supposed to happen once in every 100,000 years. Either that ... or Goldman’s models were wrong (Bonner, 2007b). But sadly Goldman were not alone. In 2007 alone, massive losses were announced by Bear Stearns, UBS, Merrill Lynch and Citigroup, and then there were the earlier financial disasters – 1987, Daiwa, Barings, Long-Term Capital, the dotcoms, Russia, East Asia, and so on – and afterwards Société Générale and Bear Stearns again in early 2008, with rumours of more yet to come. Citi’s case was particularly interesting....MORE (7 page PDF)

Wednesday, January 29, 2014

Since natural gas is, at least on the blog, untradable -up 9.6% on
Friday, ranging between $5.44 and $4.83 today, today-we'll check in on
some of the current craziness in natural gas liquids....

From ZeroHedge (Wednesday):

Natural Gas futures prics are exploding higher... By
now everyone is quite aware of the US climatic conditions so whatever
squeeze just took place has nothing to do with fundamentals, and everything to do with someone being Amaranth'd. The only question is who, and who is their counterparty (especially if it is a public company).
March Futures

and Feb Futures

The last 3 days in NG is +9.6%, -6.5%, and today +10.4% - these are 5 sigma swings!!

Much as I'd like to give the impression that natty is experiencing 5-sigma moves and that's why we stepped aside, ZeroHedge is incorrect.

“We were seeing things that were 25-standard deviation moves, several days in a row”....

Several folks, when they finally quit laughing, pointed out how blatently Mr. V was spinning.
Most however underestimated how infrequent 25SD events are, the most common guess being once in 100,000 years. Tee hee.

• a 7-sigma event is to be expected every 7.76e+11 days – the number of zero
digits is so large that Excel now reports the number of days using scientific
notation, and this number is to be interpreted as 7.76 days with decimal point
pushed back 11 places. This frequency corresponds to 1 day in 3,105,395,365
years....

The 5-sigma event:

• a 5-sigma event is to be expected every 3,483,046 days or about 1 day every
13,932 years(!!)

Citi, Goldman, Travelers and other big financial
companies have lost their mojo, and are falling faster than the market.
That's a bad sign.

Quality leadership is always important in a healthy stock market.
When financial stocks finally ascended to that role a few weeks ago to
join the technology sector, the outlook brightened considerably. But it
was not to last, and many financial stocks, from banks to insurance,
have fallen quite sharply. Without financials, the market has lost an
engine, and that spells trouble.

The Select Sector SPDR Financial
exchange-traded fund (ticker: XLF) is down only about 4.5% from its
Jan. 15 high versus about 3.5% for the Standard & Poor's 500, but
its position relative to the market has changed. Specifically, the trend
of improving performance in place since November is broken (see Chart
1).

Chart 1

Select Sector SPDR Financial ETF

Throughout the rally following the last
significant market correction in mid-2011, the stock market moved nicely
higher when financials were in the lead and stumbled when they were
not. With the latter condition back in force, we now have evidence that
stocks are in for a bumpy ride.

It is far from a bear market signal because both the S&P 500 and
the financial ETF are sitting on important support levels, but there is
little room for error. If the ETF drops below Monday's low of $20.86, it
will have little in the way of an additional 7.5% drop to support near
$19.40 set by August and October lows and a critical long-term trendline
drawn from October 2011. It traded at $21.07 Wednesday afternoon.

Within the group, insurance stocks of every type are leading to the downside. For example, property and casualty insurer Travelers
(TRV), a member of the Dow Jones Industrial Average, is down nearly 9%
year-to-date and moved below its own October 2011 trendline. While
currently oversold in the short term, the long-term bull run is clearly
over.

What is probably more frightening for the bulls is the recent breakout failure in the bank group. Citigroup
(C) started the month by rallying above an eight-month resistance
level, but within a few days it collapsed back down below it (see Chart
2)....MORE

$LUMBER has been a great story for the last 5 years.
However, the roller coaster has been difficult for investors to watch.
It's been a traders market. This week, we got a signal on the $LUMBER
chart.

The slope of the recent rise has been a lot more gradual than the
slope of the 2012 rise. Importantly, $LUMBER looks set to roll over here
with a confirmed cross on the MACD after the momentum flattened out in
November and December.
Good trading,
Greg Schnell, CMT

Iraq's goal of pumping 9m barrels a day of crude could be a game changer for
oil prices and British companies

Iraq is poised to flood the oil market by tripling its capacity to pump crude
by 2020 and is collaborating with Iran on strategy in a move that will
challenge Saudi Arabia's grip on the Organisation of Petroleum Exporting
Countries.

"We feel the world needs to be assured of fuel for economic growth,"
Hussain al-Shahristani, Deputy Prime Minister for Energy in Iraq told oil
industry delegates attending a Chatham House Middle East energy conference.

Al Shahristani said on Tuesday that Iraq plans to boost its capacity to
produce oil to 9m barrels a day (bpd) by the end of the decade as Baghdad
rushes to bolster its economy, which is still shattered by war and internal
conflict. Iraq was producing 3m bpd in December, according to the
International Energy Agency.

Iraq's intention to challenge Saudi Arabia's status as the "swing producer"
in the OPEC cartel could see a dramatic fall in oil prices if Baghdad
decides to break the group's quotas and sell more of its crude on the open
market.

"It's very difficult to predict actual world (oil) demand by 2020 because
the world economy is unpredictable," said Mr al-Shahristani.

British oil giants BP and Royal Dutch Shell are also poised to benefit from
Iraq's ambitious production plans. Both companies are already managing two
huge oil fields in southern Iraq which are vital if Baghdad is to achieve
its goal.

However, even if Iraq is able to achieve its target of boost production
capacity it is unlikely to be able to put in place sufficient pipeline and
port infrastructure to export the additional crude.

Iraq's main export terminal for loading oil tankers at Al Faw near Basra will
require billions of pounds worth of improvements in addition to the
refurbishment of its pipeline network.

Iraq's ambitious plan could see it clash increasingly with the regime in Saudi
Arabia, which has used its influence in OPEC over the last decade to keep
oil prices above $100 a barrel. Saudi itself is now under pressure to boost
output to maintain market share. The kingdom pumped 9.8m bpd in December up
by about 100,000 barrels from the previous month.

Experts say that attention within OPEC, which pumps 30pc of the world's crude,
could increasingly focus on compliance with more of the group's members
tempted to pump more barrels to protect their share of the market as the
cartel grapples with the rise of US shale oil production.

OPEC agreed in early December to renew for six months its 30m bpd output cap
for the first half of the year to keep prices above $100. However, quotas
have in the past proved difficult for OPEC as a group to enforce without any
binding penalties for over-producing. Since its restoration to OPEC
following the 2003 Gulf War, Iraq has been excluded from the group's quota
system to allow its economy to recover but pressure is mounting for it to
comply this year.

The International Monetary Fund this week warned that Iraq's weak economy
remains vulnerable to fluctuations in oil markets. Crude oil exports account
for 93pc of government revenues. The IMF estimated that Baghdad required an
average oil price of $106.1 per barrel in 2013 to balance its budget, up
from $95 in 2011 because of higher spending.

Despite Mr al-Shahristani's hopes for boosting Iraq's energy sector there are
severe concerns over security amid fears the country may again be slipping
toward a civil war between Sunni and Shia Muslim factions.

In a further challenge to Saudi Arabia, which is mostly closed to
international oil companies, Mr al-Shahristani revealed that Baghdad is
working with Iran to help it attract investment ahead of the possible
lifting of sanctions. Oil companies are understood to be queuing up to win
Iranian oil deals.

"Iran has been in touch with us," said Mr al-Shahristani. "They
want to share our contracts model and experience."

Combined, Iran and Iraq hold greater reserves of oil than Saudi Arabia and the
potential with the help of international investment to match its capacity to
produce oil, which currently stands at around 12.5m b/d of crude.

A few years after the Pacific Decadal Oscillation was described in the literature back in the late-90's a pretty sharp guy, one of those 187 I.Q. freaks of nature, told me to watch the oceans. He simplified things for me by pointing out that, because of its density and volume, the amount of heat required to raise the temperature of the oceans by a uniform 1°F would, if released into the atmosphere, raise the air temperature by 1000°(no typo).

So I have. For quite a while we were one of the few sites even making mention of the PDO and its Atlantic counterpart the Atlantic Multidecadal Oscillation. Some (we have many) links below.This is just a small part of the whole story of what goes on in climate and weather but if you ignore it you will lose money in the markets we look at on the blog. Guaranteed.
From the journal Nature :

Sixteen years into the mysterious ‘global-warming hiatus’, scientists are piecing together an explanation.

15 January 2014

Tim Graham/Robert Harding Picture Library

The Pacific Ocean may hold the key to understanding why global warming has stalled.

The biggest mystery in climate science today may have begun, unbeknownst
to anybody at the time, with a subtle weakening of the tropical trade
winds blowing across the Pacific Ocean in late 1997. These winds
normally push sun-baked water towards Indonesia. When they slackened,
the warm water sloshed back towards South America, resulting in a
spectacular example of a phenomenon known as El Niño. Average global
temperatures hit a record high in 1998 — and then the warming stalled.

For several years, scientists wrote off the stall as noise in the
climate system: the natural variations in the atmosphere, oceans and
biosphere that drive warm or cool spells around the globe. But the pause
has persisted, sparking a minor crisis of confidence in the field.
Although there have been jumps and dips, average atmospheric
temperatures have risen little since 1998, in seeming defiance of
projections of climate models and the ever-increasing emissions of
greenhouse gases. Climate sceptics have seized on the temperature trends
as evidence that global warming has ground to a halt. Climate
scientists, meanwhile, know that heat must still be building up
somewhere in the climate system, but they have struggled to explain
where it is going, if not into the atmosphere. Some have begun to wonder
whether there is something amiss in their models.

Now, as the global-warming hiatus enters its sixteenth year,
scientists are at last making headway in the case of the missing heat.
Some have pointed to the Sun, volcanoes and even pollution from China as
potential culprits, but recent studies suggest that the oceans are key
to explaining the anomaly. The latest suspect is the El Niño of 1997–98,
which pumped prodigious quantities of heat out of the oceans and into
the atmosphere — perhaps enough to tip the equatorial Pacific into a
prolonged cold state that has suppressed global temperatures ever since.

“The
1997 to ’98 El Niño event was a trigger for the changes in the Pacific,
and I think that’s very probably the beginning of the hiatus,” says
Kevin Trenberth, a climate scientist at the National Center for
Atmospheric Research (NCAR) in Boulder, Colorado. According to this
theory, the tropical Pacific should snap out of its prolonged cold spell
in the coming years.“Eventually,” Trenberth says, “it will switch back
in the other direction.”

Stark contrast On
a chart of global atmospheric temperatures, the hiatus stands in stark
contrast to the rapid warming of the two decades that preceded it.
Simulations conducted in advance of the 2013–14 assessment from the
Intergovernmental Panel on Climate Change (IPCC) suggest that the
warming should have continued at an average rate of 0.21 °C per decade
from 1998 to 2012. Instead, the observed warming during that period was
just 0.04 °C per decade, as measured by the UK Met Office in Exeter and
the Climatic Research Unit at the University of East Anglia in Norwich,
UK.

The simplest explanation for both the hiatus and the discrepancy in the
models is natural variability. Much like the swings between warm and
cold in day-to-day weather, chaotic climate fluctuations can knock
global temperatures up or down from year to year and decade to decade.
Records of past climate show some long-lasting global heatwaves and cold
snaps, and climate models suggest that either of these can occur as the
world warms under the influence of greenhouse gases.

But none of the climate simulations carried out for the IPCC produced
this particular hiatus at this particular time. That has led sceptics —
and some scientists — to the controversial conclusion that the models
might be overestimating the effect of greenhouse gases, and that future
warming might not be as strong as is feared. Others say that this
conclusion goes against the long-term temperature trends, as well as
palaeoclimate data that are used to extend the temperature record far
into the past. And many researchers caution against evaluating models on
the basis of a relatively short-term blip in the climate. “If you are
interested in global climate change, your main focus ought to be on
timescales of 50 to 100 years,” says Susan Solomon, a climate scientist
at the Massachusetts Institute of Technology in Cambridge.

But
even those scientists who remain confident in the underlying models
acknowledge that there is increasing pressure to work out just what is
happening today. “A few years ago you saw the hiatus, but it could be
dismissed because it was well within the noise,” says Gabriel Vecchi, a
climate scientist at the US National Oceanic and Atmospheric
Administration’s Geophysical Fluid Dynamics Laboratory in Princeton, New
Jersey. “Now it’s something to explain.”

Researchers have followed various leads in recent years, focusing mainly on a trio of factors: the Sun1, atmospheric aerosol particles2 and the oceans3.
The output of energy from the Sun tends to wax and wane on an 11-year
cycle, but the Sun entered a prolonged lull around the turn of the
millennium. The natural 11-year cycle is currently approaching its peak,
but thus far it has been the weakest solar maximum in a century. This
could help to explain both the hiatus and the discrepancy in the model
simulations, which include a higher solar output than Earth has
experienced since 2000.

An unexpected increase
in the number of stratospheric aerosol particles could be another
factor keeping Earth cooler than predicted. These particles reflect
sunlight back into space, and scientists suspect that small volcanoes —
and perhaps even industrialization in China — could have pumped extra
aerosols into the stratosphere during the past 16 years, depressing
global temperatures.

Some have argued that
these two factors could be primary drivers of the hiatus, but studies
published in the past few years suggest that their effects are likely to
be relatively small4, 5.
Trenberth, for example, analysed their impacts on the basis of
satellite measurements of energy entering and exiting the planet, and
estimated that aerosols and solar activity account for just 20% of the
hiatus. That leaves the bulk of the hiatus to the oceans, which serve as
giant sponges for heat. And here, the spotlight falls on the equatorial
Pacific.

Blowing hot and cold
Just before the hiatus took hold, that region had turned unusually warm
during the El Niño of 1997–98, which fuelled extreme weather across the
planet, from floods in Chile and California to droughts and wildfires in
Mexico and Indonesia. But it ended just as quickly as it had begun, and
by late 1998 cold waters — a mark of El Niño’s sister effect, La Niña —
had returned to the eastern equatorial Pacific with a vengeance. More
importantly, the entire eastern Pacific flipped into a cool state that
has continued more or less to this day.

Just before the hiatus took hold, that region had turned unusually
warm during the El Niño of 1997–98, which fuelled extreme weather across
the planet, from floods in Chile and California to droughts and
wildfires in Mexico and Indonesia. But it ended just as quickly as it
had begun, and by late 1998 cold waters — a mark of El Niño’s sister
effect, La Niña — had returned to the eastern equatorial Pacific with a
vengeance. More importantly, the entire eastern Pacific flipped into a
cool state that has continued more or less to this day.

This
variation in ocean temperature, known as the Pacific Decadal
Oscillation (PDO), may be a crucial piece of the hiatus puzzle. The
cycle reverses every 15–30 years, and in its positive phase, the
oscillation favours El Niño, which tends to warm the atmosphere (see ‘The fickle ocean’).
After a couple of decades of releasing heat from the eastern and
central Pacific, the region cools and enters the negative phase of the
PDO. This state tends towards La Niña, which brings cool waters up from
the depths along the Equator and tends to cool the planet. Researchers
identified the PDO pattern in 1997, but have only recently begun to
understand how it fits in with broader ocean-circulation patterns and
how it may help to explain the hiatus.

One
important finding came in 2011, when a team of researchers at NCAR led
by Gerald Meehl reported that inserting a PDO pattern into global
climate models causes decade-scale breaks in global warming3.
Ocean-temperature data from the recent hiatus reveal why: in a
subsequent study, the NCAR researchers showed that more heat moved into
the deep ocean after 1998, which helped to prevent the atmosphere from
warming6.
In a third paper, the group used computer models to document the flip
side of the process: when the PDO switches to its positive phase, it
heats up the surface ocean and atmosphere, helping to drive decades of
rapid warming7.

A
key breakthrough came last year from Shang-Ping Xie and Yu Kosaka at
the Scripps Institution of Oceanography in La Jolla, California. The duo
took a different tack, by programming a model with actual sea surface
temperatures from recent decades in the eastern equatorial Pacific, and
then seeing what happened to the rest of the globe8.
Their model not only recreated the hiatus in global temperatures, but
also reproduced some of the seasonal and regional climate trends that
have marked the hiatus, including warming in many areas and cooler
northern winters.

“It was actually a
revelation for me when I saw that paper,” says John Fyfe, a climate
modeller at the Canadian Centre for Climate Modelling and Analysis in
Victoria. But it did not, he adds, explain everything. “What it skirted
was the question of what is driving the tropical cooling.”

That
was investigated by Trenberth and John Fasullo, also at NCAR, who
brought in winds and ocean data to explain how the pattern emerges4.
Their study documents how tropical trade winds associated with La Niña
conditions help to drive warm water westward and, ultimately, deep into
the ocean, while promoting the upwelling of cool waters along the
eastern equatorial region. In extreme cases, such as the La Niña of
1998, this may be able to push the ocean into a cool phase of the PDO.
An analysis of historical data buttressed these conclusions, showing
that the cool phase of the PDO coincided with a few decades of cooler
temperatures after the Second World War (see ‘The Pacific’s global reach’), and that the warm phase lined up with the sharp spike seen in global temperatures between 1976 and 1998 (ref. 4).
“I
believe the evidence is pretty clear,” says Mark Cane, a climatologist
at Columbia University in New York. “It’s not about aerosols or
stratospheric water vapour; it’s about having had a decade of cooler
temperatures in the eastern equatorial Pacific.”

Heated debate
Cane
was the first to predict the current cooling in the Pacific, although
the implications weren’t clear at the time. In 2004, he and his
colleagues found that a simple regional climate model predicted a warm
shift in the Pacific that began around 1976, when global temperatures
began to rise sharply9.
Almost as an afterthought, they concluded their paper with a simple
forecast: “For what it is worth the model predicts that the 1998 El Niño
ended the post-1976 tropical Pacific warm period.”

It
is an eerily accurate result, but the work remains hotly contested, in
part because it is based on a partial climate model that focuses on the
equatorial Pacific alone. Cane further maintains that the trend over the
past century has been towards warmer temperatures in the western
Pacific relative to those in the east. That opens the door, he says, to
the possibility that warming from greenhouse gases is driving
La Niña-like conditions and could continue to do so in the future,
helping to suppress global warming. “If all of that is true, it’s a
negative feedback, and if we don’t capture it in our models they will
overstate the warming,” he says.

There are two
potential holes in his assessment. First, the historical
ocean-temperature data are notoriously imprecise, leading many
researchers to dispute Cane’s assertion that the equatorial Pacific
shifted towards a more La Niña-like state during the past century10.
Second, many researchers have found the opposite pattern in simulations
with full climate models, which factor in the suite of atmospheric and
oceanic interactions beyond the equatorial Pacific. These tend to reveal
a trend towards more El Niño-like conditions as a result of global
warming. The difference seems to lie, in part, in how warming influences
evaporation in areas of the Pacific, according to Trenberth. He says
the models suggest that global warming has a greater impact on
temperatures in the relatively cool east, because the increase in
evaporation adds water vapour to the atmosphere there and enhances
atmospheric warming; this effect is weaker in the warmer western
Pacific, where the air is already saturated with moisture.

Scientists
may get to test their theories soon enough. At present, strong tropical
trade winds are pushing ever more warm water westward towards
Indonesia, fuelling storms such as November’s Typhoon Haiyan, and
nudging up sea levels in the western Pacific; they are now roughly
20 centimetres higher than those in the eastern Pacific. Sooner or
later, the trend will inevitably reverse. “You can’t keep piling up warm
water in the western Pacific,” Trenberth says. “At some point, the
water will get so high that it just sloshes back.” And when that
happens, if scientists are on the right track, the missing heat will
reappear and temperatures will spike once again.

By-the-bye, the AMO went into its warm phase in ca. 1995 and is expectecd to re-enter the cold phase between 2015 and 2020. This will be good news for the property/casualty reinsurance biz.On the other hand it may lead to crop failures in northwest Russia and Ukraine.